I'm starting a company and I want to offer this guy 30% share if he wants to work for me on this project.

The company isn't registered yet, and I don't want to register it until the product is done.

Is it sensible for the contract to say that his 30% share will be delivered to him once the product is complete?

How should I go about doing it?_________________There is, a not-born, a not-become, a not-made, a not-compounded. If that unborn, not-become, not-made, not-compounded were not, there would be no escape from this here that is born, become, made and compounded. - Gautama Siddharta

Shell out the $$$ for a lawyer. Get a proper contract sorted. In the long run, it will be cheaper. After all, you don't want him to be able to claim that he is owed 30% of your total assets _________________People Of Love

30 percent in a company seems high as a payout for a single project._________________Here's another unfortunate pack of mutants who ought to be penciled in for a sudden visit from the angel of death.
-- Carlin

Be specific. Offering him 30% of "the company" is quite vague and open ended. If he's contributing to the development of a product, then "30% of the profit directly attributable to that product for a period not to exceed X years" might be appropriate.

That protects you if you don't earn a profit, and if you create other products he didn't contribute to.

If you're talking about more than a few thousand dollars worth of effort, I'd come up with the basic arrangement you think you want and take it to an attorney for advice and probably to have the contract draw up.

If his contribution is so significant that it warrants a 30% stake in the company, then what you're talking about is a partnership of some sort, and that's also important to get legal advice on (after you read about it, as the laws pertain to it where you live).

Yes, it would be a significant contribution. I meant 30% of the company's profit/loss. The company is only going to have one product.

So it will have to be a business partnership.

What I'm wondering about is, what if he doesn't upheld his end of the deal? (ie. he's stalling the project, or just plain not working?)

The company doesn't exist yet (and wont exist untill the product is done)._________________There is, a not-born, a not-become, a not-made, a not-compounded. If that unborn, not-become, not-made, not-compounded were not, there would be no escape from this here that is born, become, made and compounded. - Gautama Siddharta

That's a major problem with partnerships. If there's any way to do it while making him a well paid employee, then that would be preferred.

One possible solution, which can still be very ugly, is to discuss it up front. You @ 70% vs. him at 30% still puts him more in the employee zone. I'd look into legal liability issues if he's "unsatisfied" with how you make decisions. Also, there should be a performance clause allowing you to buy him out, based on profits over x number of years, or something like that._________________Here's another unfortunate pack of mutants who ought to be penciled in for a sudden visit from the angel of death.
-- Carlin

You can't very well make him an employee (yet) if there's no company. You'd need investment to cover your operating expenses while you developed it. If the idea is good, you might get it.

If not, then a stake in the company (if not in the form if a partnership then in some kind of a profit-sharing arrangement or stock options is a reasonable idea). You probably need to form a corporation and make sure the agreement assigns all intellectual property rights to the product to the corporation.

I'm starting a company and I want to offer this guy 30% share if he wants to work for me on this project.

The company isn't registered yet, and I don't want to register it until the product is done.

Is it sensible for the contract to say that his 30% share will be delivered to him once the product is complete?

How should I go about doing it?

1/ I do not know the laws in the country you are, however, I'd be very surprised if it were actually possible to contract legally about the sharing of something that does not exist and that only may exist in some undefined future (yes indeed : product is complete is absolutely meaningless) if... and if... and if... in some form... to be defined.

2/ You won't register the company until the product is done + single product...
That is what is non sensible. From the beginning.
Register the company first !
For hundreds of hundreds of sensible reasons.
(Including as a bonus... providing THE only correct answer to your question)_________________

1/ I do not know the laws in the country you are, however, I'd be very surprised if it were actually possible to contract legally about the sharing of something that does not exist and that only may exist in some undefined future (yes indeed : product is complete is absolutely meaningless) if... and if... and if... in some form... to be defined.

++

Yup._________________Do not pray for an easy life, pray for the strength to endure a difficult one. -- Bruce Lee

so you are founding a company. The problem is liability. Or in your case is not. So you have 70%, he 30... but in case something goes down. his money is on the line just like yours. that should give him some reasons to behave.

one way or the other. You need a lawyer._________________Study finds stunning lack of racial, gender, and economic diversity among middle-class white males

1/ I do not know the laws in the country you are, however, I'd be very surprised if it were actually possible to contract legally about the sharing of something that does not exist and that only may exist in some undefined future (yes indeed : product is complete is absolutely meaningless) if... and if... and if... in some form... to be defined.

++

Yup.

It's legimate, as long as there is an exchange of consideration. Contracts pertaining to future benefits which do not presently exist are made all the time.

While it's legal, it may not be enforceable (ie., it can be breached without penalty and is not binding) until an exchange of consideration has occurred.

For that reason, the contract at this point should be an agreement between the two of you contribute certain things to the venture, in exchange for your portion of ownership. The idea itself has value, and it should be noted that you are contributing that, and in what form (business plan, conceptual design, etc.). The exclusivity if his involvement has value (you agree not make the same deal with someone else). If you're smart, the agreement will mostly specify things you are going to contribute at the outset, his work to be done (in some measurable form), and the financial arrangement. That way, the contract becomes binding as soon as you have contributed substantially (at the outset), and you can hold him to the bargain. It should also clearly state that he agrees to forfeit any intellectual property rights if he breaches the contract.

This is why you need a lawyer, because you have never even heard of things like prommissory estoppel.

Quote:

promissory estoppel n. when a person makes a false statement to another and the listener relies on what was told to him/her in good faith and to his/her disadvantage. In order to see that justice is done a court will treat the statement as a promise, and in a trial the judge will preclude the maker of the statement from denying it. Thus, the legal inability of the person who made the false statement to deny it makes it an enforceable promise called "promissory estoppel," or an "equitable estoppel." Example: Bernie Blowhard tells Arthur Artist that Blowhard has a contract to make a movie and wants Artist to paint the background scenery in return for a percentage of the profits. Artist paints, and Blowhard then admits he needed the scenery to try to get a movie deal which fell through and there are no profits to share. Artist sues and the judge finds that Blowhard cannot deny a contract with Artist and gives Artist judgment for the value of his work.

1/ I do not know the laws in the country you are, however, I'd be very surprised if it were actually possible to contract legally about the sharing of something that does not exist and that only may exist in some undefined future (yes indeed : product is complete is absolutely meaningless) if... and if... and if... in some form... to be defined.

What I say is no more no less than : You just cannot (neither objectively nor even subjectively) determine the value of something that does not exist!
This just per application of a basic principle that if X does not exist, the value of X is... at best undefined, at worse... a meaningless concept._________________

Last edited by aCOSwt on Wed Jul 31, 2013 12:43 pm; edited 1 time in total

1/ You confirm what I had already noticed : You made considerable and significant progresses ?
2/ You experience some side effect of the fact that I'm feeling more and more... on holidays ?
3/ OTW is no longer OTW for me ?
4/ I'm aging... faster ?

1/ I do not know the laws in the country you are, however, I'd be very surprised if it were actually possible to contract legally about the sharing of something that does not exist and that only may exist in some undefined future (yes indeed : product is complete is absolutely meaningless) if... and if... and if... in some form... to be defined.

What I say is no more no less than : You just cannot (neither objectively nor even subjectively) determine the value of something that does not exist!
This just per application of a basic principle that if X does not exist, the value of X is... at best undefined, at worse... a meaningless concept.

An idea does exist. A conceptual design does exist. A business plan does exist. All have value which can be objectively determined. If this were not the case, we'd never have penalties in patent violation cases. notageek, you're even more wrong than he, for being wrong plus being a hapless, suck-ass Boy Robin to his misinformed Batman.